The dollar, on Wednesday, September 27, was lifted following growing expectations that the U.S. Federal Reserve will raise interest rates for the third time.
The dollar rose half a percent to a one-month high against a basket of currencies and yields on interest rate-sensitive two-year U.S. Treasury yields touched their highest since 2008 after Fed Chair Janet Yellen said on Tuesday it would be “imprudent” to keep rates on hold until U.S. inflation hit 2 percent.
Ten-year yields climbed seven basis points to an eight-week high of 2.30 percent, also pushed higher by the prospect of tax cuts that could increase federal borrowing, analysts said.
Markets are pricing in a more than an 80 percent chance the Fed will raise borrowing costs in December, according to the CME Group’s FedWatch tool, up from 72 percent a week ago. Several other senior Fed officials are scheduled to speak on Wednesday.
“Yellen’s comments gave more certainty about another rate hike by the end of the year,” said DZ Bank rates strategist Daniel Lenz.
“Further details of Trump’s tax plans and whether this proceeds smoothly will be of interest — it should be a boost to the economy and mean a generally higher bond yield environment.”
On the eve of its announcement, Trump said lawmakers should expect a “very, very powerful document” that would cut taxes “tremendously” for the middle class.
If passed, the plan would be Trump’s first significant legislative win since taking office in January.
”The idea that Trump could be reaching across the aisle, talking about tax cuts to middle and low income households, if it comes to pass, we are talking a pretty material fiscal boost to the U.S. economy.
This sort of easy fiscal policy is why the markets are reacting the way they have,” said Mark Dowding, co-head of investment grade at BlueBay Asset Management, Reuters reports.
